The Importance of Integrating Supply†Side Factors in Economic Base Models

Economic base (or export†base) theory (EBT) is often presented as a Keynesian†inspired theory that only accounts for demand†side factors. However, the recent integration of supply†side factors into economic base models (EBMs) can contribute to renewing applications of this type of model in regional economics. This paper proposes a literature review focused on new EBMs that explicitly take into account supply effects and includes both North American and European studies. It first explains why integrating supply†side factors is relevant for EBMs. Second, the paper shows how to integrate these supply†side factors into the various types of models, focusing on two production factors: land and its amenities and labor. Third, the paper discusses the conditions for integrating such supply†side factors into EBMs.